Question

11.   Demand-pull inflation occurs when the aggregate __________ curve shifts _______.
A.   demand, right
B.    demand, left
C.    supply, right
D.   supply, left

12.   When the aggregate price level decreases, the resulting decrease in interest rates will most likely ___________ investment and _____________ consumption.
A.   increase, increase
B.    increase, decrease
C.    decrease, increase
D.   decrease, decrease

13.   The economy is operating at full capacity.  The long-run aggregate supply curve is __________.  In the long run, an increase in the aggregate price level will __________ output.
A.   horizontal, increase
B.    horizontal, not change
C.    vertical, increase
D.   vertical, not change

14.   The more important the foreign trade effect, the __________ the aggregate __________ curve .
A.   steeper, demand
B.    steeper, supply
C.    flatter, demand
D.   flatter, supply

15.   The economy is in equilibrium at the full employment level of output.  Now aggregate demand decreases.  In the long run
A.   the equilibrium output level will increase.
B.    the equilibrium output level will decrease.
C.    the equilibrium aggregate price level will rise.
D.   None of the above.

16.   The economy has an unemployment rate of 2.7%.  The natural rate of unemployment is felt to be about 5.6%.  The operation of the economy’s self-correcting mechanism should result in the
A.   aggregate demand curve shifting to the right.
B.    aggregate demand curve shifting to the left.
C.    short-run aggregate supply curve shifting to the right.
D.   short-run aggregate supply curve shifting to the left.

17.  The economy is in equilibrium at full employment real GDP.  Now aggregate demand decreases.  Also, widespread technological improvements occur.  Which of the following will happen?
A.   Inflation will occur.
B.    Equilibrium real GDP will decrease in the short run.
C.    Equilibrium real GDP will increase in the short run.
D.   The equilibrium aggregate price level will decrease.

18.  Ben Bernanke raises interest rates.  In the short run, we would predict that unemployment will __________ and inflation will ___________.
A.   increase; increase
B.    increase; decrease
C.    decrease; increase
D.   decrease; decrease

19.  The economy is in long-runequilibrium.  Now consumption increases.  At the initial output level, all of the following are trueexcept that
A.   we should expect the aggregate price level will increase.
B.    inventory levels are falling unexpectedly.
C.    planned aggregate expenditures are greater than aggregate output.
D.   saving level has increased.

20.  Unemployment resulting from technological changes in a particular industry making job skills obsolete is
A.   structural unemployment.
B.    cyclical unemployment.
C.    natural unemployment.
D.   frictional unemployment.

21.  An increase in interest rates will cause planned investment to __________ and aggregate demand to __________.
A.   increase; increase
B.    increase; decrease
C.    decrease; increase
D.   decrease; decrease

22.  The economy is experiencing cyclical unemployment.  The self-correcting mechanism will restore full employment by shifting the aggregate _________ curve to the ________.
A.   demand; left
B.    demand; right
C.    supply; left
D.   supply; right

Answer 1

11. A.   demand, right. Increase in demand is shown by shifting AD curve to the right. This demand in excess of supply leads to demand pull inflation.

13. D.   vertical, not change. Long run aggregate supply is vertical and this means that output is inelastic or does not change with change in price.

15. B.    the equilibrium output level will decrease. In long run, aggregate supply also decreases and new equilibrium establish at a lesser level of output.

20. A.   structural unemployment. Structural unemployment is due to change in the structure of the economy.